Alcoa, the largest U.S. aluminum producer and seen as a bellwether for the U.S. economy, rose 1.1 percent to $10.99. All the other 30 components on the Dow industrial average also were higher.

Railroad company CSX Corp , the first major U.S. railroad to report results, also posted a higher-than-expected profit. CSX shares fell 0.6 percent to $52.19.

High expectations that this trend (of strong earnings) will continue is bringing the risk back in the market, said Peter Cardillo, chief market economist at Avalon Partners.

The Dow Jones industrial average was up 138.04 points, or 1.35 percent, at 10,354.31. The Standard & Poor's 500 Index was up 14.37 points, or 1.33 percent, at 1,093.12. The Nasdaq Composite Index was up 26.79 points, or 1.22 percent, at 2,225.15.

Advancing stocks outnumbered declining ones on the New York Stock Exchange by a ratio of 12 to one, while on the Nasdaq, eight stocks rose for every one that fell.

Investors have been eagerly awaiting earnings news for confirmation that a recent rally was justified. Last week, the S&P posted its strongest week of the year, rising more than 5 percent.

Other Dow stocks due to report quarterly results later in the day and throughout the week including Intel Corp , JPMorgan Chase & Co , General Electric Co also rose on earnings optimism.

Intel, due to report earnings after the bell, rose 2 percent to $20.98. JPMorgan Chase was up 2.5 percent to $40.15 and General Electric gained 2.2 percent to $15.26.

But some analysts warned that momentum may be waning as volume continues to drop off.

Scott Fullman, director of derivative investment strategy at WJB Capital Group said trading volume on the New York Stock Exchange fell to another six-month low on Monday, raising new cautionary flags.

He added that total volume in the options pit also eased 6.1 percent, led by a 10.7 percent drop in call trading. That increased the total put/call ratio to 0.84 from 0.75.

In VIX, put premiums outpaced calls in the 30-day contracts on Monday, which were little changed compared to the sharp increases in call and put premiums for 60, 90, and 120 day contracts.

We also noted that the call increases outpaced their put equivalents, leading us to believe that traders are beginning to price in higher risk into the fall, Fullman said.

The euro zone crisis also returned to the fore as ratings agency Moody's Investor Service cut its rating on Portugal by two notches to A1. The U.S. trade deficit unexpectedly widened in May.

U.S.-listed shares of BP Plc rose 1.4 percent to $37.27 as the company prepared to try and seal off its runaway well in the Gulf of Mexico with a new cap that it says could finally arrest the flow of oil.